Australian Property

Australian property is one the widest and deepest asset bubbles in the history of capitalism. Any objective assessment of this “market” can lead to no other conclusion.

With a long history of commitment to home ownership, Australians have always been prepared to structure their finances around property. This showed up in a total dwelling stock to GDP ratio that persisted around a very high 150% from 1960 to 1990. In the late 1990s that shot up to 200% and then embarked on near ceaseless climb to 360% today.

There are many other guides to the extreme overvaluation of Australian property. The ratio of household debt (overwhelmingly mortgages) to disposable income is the highest in the world at 186%. Median price to income multiples are anything from 12x in Sydney, to 10x in Melbourne, down to still immensely unaffordable 6x in smaller capitals, up from 3-4x times in all over the long run for all. The extent of overvaluation is plain.

What makes the Australian property bubble unique is the degree to which it has warped the nation’s political economy. Once a diverse and vibrant resources and manufacturing economy, over the twenty years that the Australian housing bubble grew that shape changed completely. An huge proportion of the debt underpinning Australian property is borrowed from offshore, almost $1 trillion, mostly by its big four major banks. This perpetually inflated the local currency, as well as input costs like land prices, which dramatically diminished Australian competitiveness and drove tradable sectors like manufacturing offshore. From 14% of output in the 1970s, manufacturing hit 5% of output in 2016, the lowest in the OECD.

Moreover, the centrality of Australia property to the wealth of the national polity increasingly distorted policy and even elections. In the 2008 global financial crisis, the then Labor government bailed out the the big four banks with guarantees to their offshore loans, rewriting the entire rule book for Australia’s financial architecture in one panicked afternoon. Public subsidies poured into demand-side stimulus, as well as RMBS markets. Any notion that Australian property was a “market” evaporated. Australian property was, and remains, a kind of asset quango, a public/private partnership in support of the retirement plans of its pre-dominant Baby Boomer generation.

MacroBusiness cover all elements of Australian property daily.

These guarantees exist to this day and reached their peak distortion to the political economy in 2016 when the ruling Liberal/National Party Coalition government fought and won an election in the singular defense of “negative gearing”, the principal tax policy most responsible for investor’s favouring property over other asset classes.

Contemporary Australia does not just have a property bubble, it has morphed into Propertocracy in which the primacy of house prices determines who leads the country, what policies are chosen and which generations prosper.


Land bankers hit back

By Leith van Onselen In December, David Collyer from Prosper published a cracking article entitled Englobo, which discussed the practice of land banking and land speculation on Melbourne’s fringe, and included the below table showing the large land banks held by Australia’s residential housing developers: Lots settled Lots in development Disclosed end value Average lot


Government to increase Melbourne land supply

By Leith van Onselen After yesterday questioning the Victorian planning minister’s plan to limit new development in established inner “areas with significant local character”, the Victorian Government has moved to expand Melbourne’s effective land supply by 60,000 lots by the end of 2014. From the AFR: Mr Guy said the 60,000 lots were within the


Housing affordability improves but FHB struggle

By Leith van Onselen The Adelaide Bank/Real Estate Institute of Australia (REIA) has today released its quarterly affordability report, which revealed an ongoing improvement in both home buyer and rental affordability over the December quarter of 2012, although the number of first home buyers (FHBs) has dropped markedly. According to the Media Release: “The December


Land costs rise as block sizes shrink

By Leith van Onselen The Urban Development Institute of Australia (UDIA) yesterday released its annual State of the Land Report (below), which provides an assessment of land supply in Australia’s capital cities. For me, the centrepiece of this year’s report are the below charts showing an ongoing increase in fringe land values in Melbourne, Brisbane


Governments fail to boost new house sales

By Leith van Onselen Property Observer today has released a great primer summarising the various incentives on offer from Australia’s state and territory governments for purchasers of “off the plan” dwellings. This is a good chance to compare the grants with sales and gauge their efficacy to date. Below are the incentives on offer (quoted


Auction clearances solid

By Leith van Onselen The Real Estate Institute of Victoria (REIV) yesterday released its preliminary auction results for the weekend just gone, which registered a small dip in the auction clearance rate and a high number of missing results. The REIV reported a preliminary clearance rate of 69% on 884 auctions. This compares to last


QLD relaunches FHB grant

By Leith van Onselen January’s new home sales figures, released last week by the Housing Industry Association (HIA), were disastrous for Queensland, registering the worst monthly house sales and the lowest annual sales in the series’ 16.5 year history (see next chart). The poor result has clearly worried the Queensland Government, which over the weekend


New home sales climb to their knees

By Leith van Onselen The Housing Industry Association (HIA) has just released new homes sales data for the month of January, which continued its tentative recovery. Below is the Press Release: New home sales hit the right note for the new year, posting a fourth consecutive rise in January, said the Housing Industry Association, the


Another developer books a loss

By Leith van Onselen From Property Observer comes news today that AV Jennings has posted a -$19.1 million loss for the first half of the 2013 financial year compared to a $3.3 million profit a year ago. This follows news earlier in the week that Becton had fallen into receivership as well as the first


Becton bites the dust

Another major developer eats dirt today with Becton Group defaulting on loans to Goldman Sachs. The AFR reports: Becton Property Group’s corporate entities have been put into receivership by the beleaguered company’s lending consortium, led by Goldman Sachs. The residential and retirement village developer had been negotiating with its corporate lenders to gain the crucial


Adelaide developers go mad

By Leith van Onselen It seems Adelaide developers have joined their east coast brethren by offering generous incentives to buyers of house and land packages. From Adelaide Now: State government grants and record low interest rates are starting to have an impact, with Housing Industry Association figures revealing new home approvals in South Australia increased


Busting negative gearing’s myths

Please find below another interesting article from Philip Soos debunking some of the common misconceptions around negative gearing of Ausralian property. Philip is a Masters research student at the School of Humanities and Social Sciences, Deakin University. In Australia, few housing market policies are more contentious than negative gearing (NG). At the forefront of defending


Mortgage Choice lobbies for FHB ponzi scheme

By Leith van Onselen Publicly-listed Australian mortgage broking firm, Mortgage Choice, has taken self-interest to another level in the wake of the sharp fall in first home buyer (FHB) mortgage demand, whereby the proportion of mortgages to FHBs fell to the lowest level since June 2004 following the recent cancellation of grants to first-time buyers


Weekly RP Data house price update

By Leith van Onselen In the week ended 21 February 2013, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, recorded a 0.01% increase, which followed las week’s 0.16% increase (see next chart). Value gains were driven by Melbourne and Brisbane, which more than offset falls in the


Melbourne sinks deeper into house-and-land bog

By Leith van Onselen Oliver Hume has released some worrying statistics for Melbourne’s house-and-land market. From Property Observer: According to the latest quarterly report from Oliver Hume, there has been a 29% increase in the number of residential projects being marketed on Melbourne fringes since 2006 with the real estate group forecasting 160 active projects


Distressed property listings on the rise

By Leith van Onselen Colliers International has released research today showing a big jump in distressed property listings in the second half of 2012, with further increases expected in 2013. From Property Observer: Distressed property listings surged 36% in the second half of 2012 on the back of 5,207 companies going into external administration in


Rental vacancies tighten

By Leith van Onselen SQM Research has just released rental vacancy rates for January, which registered a sharp fall from December as the traditional Christmas seasonal uplift disipated (see next table). At the national level, residential vacancies declined by 0.4%, coming to a total of 54,156 homes. However, the vacancy rate was 0.1% higher than